Group transforms to get to the core

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After a successful strategic transformation to a market-oriented company over the past few years, Beijing Enterprises Holdings is looking at rapid growth this year.

The company, formed in Beijing and listed in Hong Kong in 1997, started its strategic transformation from a conglomerate to a corporation of public utilities including gas, expressway and water operations, consumer business Yanjing beer and high-technology business.

Zhang Honghai, vice-chairman and chief executive, said: 'When the company listed the business was a bit too diverse. However, over the past three to four years we successfully reformed and identified infrastructure, public utilities and consumer products as our core business.

'We completely accomplished our strategic transformation last year, which established a good foundation for our long-term development. We believe our business is entering a period of rapid growth.'

The economic boom on the mainland and bullish financial markets in the mainland and Hong Kong enabled the company to experience a record-breaking financial performance last year.

Sales revenue last year jumped 55.9 per cent to HK$11.3billion and net profit climbed 73.5 per cent to HK$1.03 billion.

It was the best performance since the company was established 11 years ago. The company declared a final dividend of 30 HK cents and a final special dividend of 10 HK cents per share.

The company completed the acquisition of Beijing Gas Group last year, the largest municipal gas supply enterprise on the mainland.

The consolidation of Beijing Gas played a major role in the financial performance of the company. The firm also benefited from the growth of Beijing Yanjing Brewery and Beijing Capital Airport Expressway.

The company made a HK$404million gain last year from disposals of Beijing Development (Hong Kong) and China Information Technology Development.

Earlier this month, the company agreed to sell its share of Everbest Islands, Beijing Shunxing Wine and Fengshou Wine. After the transaction, the company will no longer operate any tourism service business and wine production.

Mr Zhang said there were no dramatic changes in the management team last year. Instead the firm endeavoured to improve the internal structure and make it more transparent to meet market demand and further protect shareholders' interests.

Besides raising profits and lowering costs through enhancing operational efficiency, the company will keep looking for investment opportunities.

The company is maximising shareholders' interests by trying to balance annual returns with the long-term business growth.

'There is a conflict between long-term investment and instant returns. Investing in some long-term businesses will create a financial burden - no profit in the short term. Especially for public utilities. They take time to achieve a profit.'

To explore new gas resources, Beijing Gas will collaborate with Inner Mongolia Datang International Keqi Coal-based Gas and pay 1.86billion yuan (HK$2.07 billion) for a 33 per cent stake. The collaboration, a project using coal to produce 4billion cubic metres of natural gas a year, is an 18.78billion yuan investment. 'If this collaboration succeeds we will continue to work with companies possessing coal and gas resources,' Mr Zhang said.

While its natural gas pipeline network will continue to extend to more cities in the Bohai Circle region, the company has recently confirmed a gas distribution deal with Shandong-based Zhongyuan Gas. Mr Zhang said that several gas distribution projects were under negotiation.

Yanjing beer, one of the leading brewers on the mainland, aims to break through 5 million tonnes of annual sales volume in two years and be the eighth biggest brewer in the world.

Mr Zhang said Yanjing would have 11 investment projects from new raw material production plants in Xinjiang and Inner Mongolia to expansion of several production bases this year to meet the rapid growth of business.

Its water treatment operation, Beijing Enterprises Water Group, will invest in water-related projects in mainland towns including waste water processing projects in Baoding, Hebei province, and Hanzhong, Shaanxi province.

Mr Zhang said the company was also in talks with water treatment firms to expand the company's scale to processing 15 million to 20 million tonnes of water this year and to more than 300 million tonnes next year.

'In addition to our natural gas and beer business, the water treatment operation is an industry with great potential and a new revenue source for the interests of our shareholders,' he said.

'We are speeding up the development of [water treatment operation], aiming to be one of the leading water groups on the mainland in a short time.'

Despite the impact of the subprime mortgage crisis in the United States, Mr Zhang said there were many good opportunities for the company.

'The situation is tough this year. But there are opportunities out there for enterprises like us,' he said.